Carbon Costs

The average big U.S. chemical maker emits 6.6 million metric tons of carbon per year and is likely to take a 0.5 to 25% hit to earnings by 2019 if carbon trading comes to the U.S., according to a new study of U.S. companies.

"Climate change represents serious challenges to the environment as well as risks and opportunities to U.S. operations," notes Malcolm Fox, a vice president of Trucost, the company that prepared the study. Fox recommends that companies strategize now to reduce their future carbon emissions.

The study, "Carbon Emissions—Measuring the Risks," analyzes companies' current operations and extrapolates their exposure to carbon emission costs. Trucost, a U.K.-based provider of environmental data and analysis, prepared the study for standards and certification organization NSF International. It examines greenhouse gas emissions of 230 firms grouped into seven categories in the Standard & Poor's 500 list of public companies.

The average S&P 500 chemical company—derived from a list that includes Air Products & Chemicals, DuPont, and Dow Chemical—emits 6.6 million metric tons of carbon annually from operations. Health care companies such as Abbott Laboratories and Merck & Co. emit just 218,000 tons of carbon. The study's authors explain that "the high level of emissions in the chemical sector is partly due to energy-intensive manufacturing processes."

Carbon costs come not only from emissions of company operations but also from the indirect emissions of electricity and raw material suppliers. At $26 per ton, the projected cost of carbon in 2019, carbon costs would equate to nearly 10% of chemical company earnings on average. Costs could vary substantially from firm to firm depending on the intensity of carbon use.

But companies that are not carbon intensive are not entirely off the hook. "The average company in the health care sector needs to prepare for the fact that almost 90% of its carbon emissions are embedded in its supply chain, representing a significant financial risk," Fox says. By 2019, some health care firms could see carbon costs take a 2% bite out of earnings.